[Federal Register Volume 81, Number 217 (Wednesday, November 9, 2016)]
[Notices]
[Pages 78878-78880]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27028]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79236; File No. SR-BatsEDGX-2016-59]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend EDGX Rule 2.5, Restrictions, Regarding Members and Associated 
Persons of Members Who Are or Become Subject to a Statutory 
Disqualification

November 3, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 24, 2016, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated this proposal as a ``non-controversial'' proposed rule 
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend EDGX Rules regarding Members 
and associated persons of Members who are or become subject to a 
statutory disqualification.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 2.5 
(Restrictions) to add language which provides the Exchange with the 
discretion to determine whether to permit a person to become a Member 
or an associated person of a Member or continue as a Member or in 
association with a Member on the Exchange.
    Currently, Rule 2.5 restricts any persons from becoming a Member or 
continuing as a Member where (1) such person is other than a natural 
person and is not a registered broker or dealer, (2) such person is a 
natural person who is not either a registered broker or dealer or 
associated with a registered broker or dealer, (3) such person is 
subject to a statutory disqualification,\5\ except that a person may 
become a Member or continue as a Member where, pursuant to Rules 19d-1, 
19d-2, 19d-3 and 19h-1 of the Act,\6\ the Commission has issued an 
order providing relief from such a disqualification and permitting such 
a person to become a Member, or (4) such person is not a member of 
another registered national securities exchange or association.
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    \5\ The Exchange uses the definition of statutory 
disqualification set forth in the Act. See Exchange Rule 1.5(bb); 15 
U.S.C. 78c(a)(39).
    \6\ See 17 CFR 240.19d-1, 17 CFR 240.19d-2, 17 CFR 240.19d-3, 
and 17 CFR 240.19h-1.
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    The Exchange notes that the proposed rule changes below are 
substantially similar to the rules of the International Securities 
Exchange (``ISE''),\7\ the rules of the Chicago Board Options Exchange 
(``CBOE''),\8\ and a recent amendment made by the BOX Options Exchange 
LLC (``BOX'').\9\
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    \7\ See ISE Rule 302; Securities Exchange Act Release No. 42455, 
65 FR 11401 (March 2, 2000) (Order Granting Registration as a 
National Securities Exchange).
    \8\ See CBOE Rule 3.18; Securities Exchange Act Release No. 
43056 (July 19, 2000), 65 FR 46524 (July 28, 2000) (SR-CBOE-1999-15) 
(Order Approving Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 3 to the Proposed 
Rule Change by the Chicago Board Options Exchange, Inc. Relating to 
Membership Rules).
    \9\ See BOX Rule 2040; Securities Exchange Act Release No. 78449 
(August 1, 2016), 81 FR 51947 (August 5, 2016) (SR-BOX-2016-26).
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    The Exchange first proposes to amend the language of Rule 2.5 to 
give itself the discretion to determine if a restriction on a Member 
becoming or continuing on as a Member is appropriate. The Exchange also 
proposes to make clear that the limitations of Rule 2.5 are equally 
applicable to persons associated with Members as they are to Members.
    The Exchange then proposes to amend Rule 2.5(a)(3) to delete the 
language that allows a person to become a Member or continue as a 
Member where, pursuant to Rules 19d-1, 19d-2, 19d-3 and 19h-1 of the 
Act,\10\ the Commission has issued an order providing relief from such 
a disqualification and permitting such a person to become a Member. The 
Exchange does not believe that this language reflects the Commission's 
current review process, as an order is not necessarily required in 
every instance.
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    \10\ See supra, note 6.
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    The Exchange then proposes to add three more situations with regard 
to whether a person may become a Member or continue as a Member in any 
capacity on the Exchange. The additional restrictions are when: (1) 
Such person fails to meet any of the qualification requirements for 
becoming a Member or associated with a Member after approval thereof; 
(2) such person fails to meet any condition placed by the Exchange on 
such Member or association with a Member; and (3) such person violates 
any agreement with the Exchange. The Exchange proposes these additions 
in order to allow the Exchange more discretion in its determination as 
to whether a person may become or continue as a Member or in 
association with a Member. The Exchange notes that the Exchange must 
act consistent with the protection of investors and in the public 
interest and is prohibited from unfairly discriminating against Members 
or prospective Members.\11\ Further, any prospective Member that has 
been denied membership in the Exchange or barred from becoming 
associated with a Member is entitled to certain due process pursuant to 
Chapter X of the Exchange's rules, which

[[Page 78879]]

includes, but is not limited to, potential review by the 
Commission.\12\
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    \11\ See 15 U.S.C. 78f(b)(5).
    \12\ See Chapter X of the Exchange's Rules.
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    The Exchange also proposes to add language with regard to a Member 
or associated person that becomes subject to a statutory 
disqualification under the Act. The proposed rule would allow a Member 
or associated person who becomes subject to a statutory 
disqualification and who wants to continue as a Member of the Exchange 
or in association with a Member, to submit a request to the Exchange 
seeking to continue as a Member or in association with a Member 
notwithstanding the statutory disqualification.\13\
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    \13\ The Member or person associated with a Member must submit 
the request within thirty (30) days of becoming subject to a 
statutory disqualification.
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    The Exchange also proposes to add language which allows Members and 
associated persons whose request to become a Member or associated with 
a Member is denied or conditioned, or any person whose association with 
a Member is denied or conditioned pursuant to the restrictions codified 
in Rule 2.5(a), and any Member or person associated with a Member who 
is not permitted to continue as a Member or be an associate with a 
Member or to which association is conditioned to seek review under the 
provisions of the Exchange Rules relating to adverse actions.\14\
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    \14\ See Chapter X of the Exchange's Rules.
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    Lastly, the Exchange proposes to add Interpretation and Policy .05, 
which will allow the Exchange to waive the provisions of Rule 2.5 when 
a proceeding is pending before another self-regulatory organization 
(``SRO'') to determine whether to permit a Member or associated person 
to continue membership or association notwithstanding a statutory 
disqualification. The Exchange notes that this proposed rule change is 
substantially similar to the comparable rules of the CBOE,\15\ and the 
rules of BOX, as amended.\16\ Further, in the event the Exchange 
determines to waive the provisions of this Rule with respect to a 
Member or associated person, the Exchange shall determine whether the 
Exchange will concur in any Exchange Act Rule 19h-1 filing made by 
another SRO with respect to the Member or associated person.
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    \15\ See Interpretation and Policy .01 to CBOE Rule 3.18.
    \16\ See IM-2040-8 to BOX Rule 2040.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\17\ In particular, 
the Exchange believes the proposed change furthers the objectives of 
Section 6(b)(5) of the Act,\18\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule changes are consistent 
with the requirements above. Specifically, the Exchange believes the 
proposed changes will better enable the Exchange to use its discretion 
in determining whether a person may become or continue as a Member or 
associated person. Because of the discretionary language and additional 
restrictions, the Exchange may consider additional circumstances when 
determining whether a person may become or continue as a Member or 
associated person on the Exchange.
    The Exchange believes that Proposed Rule 2.5(c) regarding any 
person or Member's ability to appeal a denied or conditioned request to 
become or continue as a Member or to associate with a Member is 
reasonable because it provides a fair procedure for the Members and 
persons associated with Members pursuant to Rule 7.6 (Summary 
Suspension of Exchange Services).
    The Exchange also believes the proposed rule change regarding the 
waiver of the provisions of Rule 2.5 will better enable the Exchange to 
focus Exchange resources on other matters while another SRO is 
determining whether to permit a Member or associated person to become 
or continue being a Member or associated person on the exchange.
    Lastly, the Exchange believes is it reasonable to remove language 
in Rule 2.5(a)(3) because the Exchange is eliminating any potential for 
confusion by simplifying the Exchange Rules, ensuring that Members, 
regulators, and the public can more easily navigate the Exchange's 
Rulebook.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As noted above, although the 
proposal will provide the Exchange with additional discretionary 
authority with respect to potential Members of the Exchange, the 
Exchange is bound by the Act to act consistent with the protection of 
investors and in the public interest and is prohibited from unfairly 
discriminating against Members or prospective Members.\19\ Further, the 
proposal is not a competitive proposal designed to either attract or 
prevent prospective Members from joining the Exchange, but rather, is 
primarily focused on modifying the Exchange's rules to ensure clarity 
and consistency with other SROs.
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    \19\ 15 U.S.C. 78f(b)(5).
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(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from Members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (A) 
Significantly affect the protection of investors or the public 
interest; (B) impose any significant burden on competition; and (C) by 
its terms, become operative for 30 days from the date on which it was 
filed or such shorter time as the Commission may designate it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \20\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\21\ the Exchange has 
designated this rule filing as non-controversial. The Exchange has 
given the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission.
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 17 CFR 240.19b-4.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 78880]]

it appears to the Commission that such action is: (1) Necessary or 
appropriate in the public interest; (2) for the protection of 
investors; or (3) otherwise in furtherance of the purposes of the Act. 
If the Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule should be approved 
or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-BatsEDGX-2016-59 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File No. SR-BatsEDGX-2016-59. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-BatsEDGX-2016-59 and should be 
submitted on or before November 30, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27028 Filed 11-8-16; 8:45 am]
 BILLING CODE 8011-01-P